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Our Scottish Pacific SME Growth Index is a twice-yearly snapshot of Australia's small to medium sized business sectors showing cashflow issues that many businesses face today, below is the third of six key insights found in our September 2018 report:

Cash flow being “squeezed from both ends”

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With business owners saying cash flow is the dominant issue keeping them up at night, we asked what caused the biggest negative impact on their cash flow over the past 12 months.*

SMEs continue to pinpoint Government red tape and compliance issues as the main culprit (nominated by 73%, across the total market of growth, consolidating and declining SMEs). Previous rounds of the SME Growth Index pinpointed that red tape and compliance concerns revolved around BAS reporting, the Fair Work Act and company tax.

The other top cash flow issues were the dual problems of customers paying late (43%) and suppliers reducing payment terms (40%).

So SMEs are feeling the pressure from both ends of the supply chain. This places major strains on efficient working capital management.

There has been a noticeable tightening in cash flow throughout 2018, despite a low interest rate environment and broadly improving operating conditions and business confidence.

More than one in four SMEs (27%) said they had difficulty meeting tax payments on time and one in five (21%) were unable to take on new work and capital expenditure due to cash flow restrictions.

The opportunity cost of sub-optimal cash flow continues to hold back growth SMEs, most of whom believe they could increase turnover if they could improve their cash flow.

Respondents were asked what percentage of revenue was foregone due to poor cash flow, and on average this was 17%, a significant impact on any SME’s bottom line.

East & Partners have extrapolated this figure to estimate that poor cash flow cost Australia’s SME sector A$234.6 billion in lost revenue in 2017.**

Almost all SMEs (92%) said if cash flow had been better in the past 12 months they would have generated more revenue, with the remainder reporting no cash flow issues in the past 12 months.

More than half (55%) indicated that revenues could have increased by 5-25% if cash flow improved.

For growth businesses only, almost half (44%) could have grown by 10-25% with better cash flow and one in five think they missed out on a 25-50% revenue increase.

Over the past 12 months, initiatives by ASBFEO’s team led by Ombudsman Kate Carnell have highlighted the need to improve access to finance and business conditions for SMEs. This includes supporting Commonwealth Government moves to ensure subcontracts on government projects are paid in 30 days or less.

SME Growth Index results show that SMEs’ cash flow situation remains troubling and further initiatives should be supported.

Within the SME sector, there’s plenty on the table for any business which can improve its cash flow.

* More than one response was allowed

** The total revenue figure was derived by taking estimated revenue for the whole economy ($5.4 trillion) and holding the SME proportion at 27.5% of total revenue (A$1.49 trillion), multiplied by the proportion of SMEs that report cash flow could be better, multiplied against the average revenue percentage improvement if cash flow was better.

Like to know more? To download the latest copy of our SME Growth Index, click here.

Our next release will be available in March 2019 and will be available on our website.

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